Recap: Week Ending May 29, 2015

May 31, 2015

For the first time in a few weeks, equity markets moved lower in unison. The Dow Jones Industrial Average was the worst performing, closing the week down 1.21%. On the flip side, the NASDAQ100 index fared much better, closing the week down only 0.42%. In recent weeks US indexes have closed in conflicting directions, creating a market that has traded with little to no conviction in either direction. With the presence of the in sync move to the downside, a selloff with force may be in the works. The Toronto Stock Exchange Composite Index, or TSX, performed much worse than its US counterparts, closing the week down 1.23%. Part of the selloff across the board can be related to the strong US Dollar that has recently put the breaks on any attempts equities have made to the upside. Last week the Dollar Index rallied 0.88 points or 0.91%. It appears that the market is stuck in limbo as it awaits the much-anticipated interest rate decision from the US Federal Reserve. The recent push higher in the Dollar Index may be a sign that the date for a hike in rates is sooner than later. A move higher in rates would cause a strong bid in the US Dollar as many investors and savers would flock to the US currency to receive higher interest rates. Some believe that a move higher in interest rates will put the brakes on the push higher in equities and investors will not be able to purchase stocks with “cheap” borrowed money. On a contrary note, a move higher in rates signals that the US economy is strong and improving. Such a tone may very well send the price for equities higher. Even the bond market appears to be in limbo like the rest of many exchange traded products. Last week the long 30 year US Treasury bond closed the week higher by 2.50 points or 1.63%. A move higher in interest rates would push the price for bonds lower, cause yields on those bonds to rise. Gold, which is commonly referred to as a hedge against inflation has bee trading around trend lows. Last week Gold performed relatively weakly, trading down $14.90 or -1.24%.

As mentioned previously, the TSX performed rather poorly last week. The slide can be attributed to a fall in the price of gold and a narrow gain for the price of crude oil. Last week crude was able to squeak out another close higher, moving up by $0.24 or 0.4%. It appears that crude has found an area of value between $58 and $62 where it has traded for the past month. The sideways action in crude combined with the relative downside seen in gold has led the TSX to move slowly lower off its multiyear highs that it established in the middle of April. From a technical standpoint, the TSX is sitting below its 50 day simple moving average and above its 200 say simple moving average, both areas of resistance and support respectively. As highlighted in previous editions, the TSX RSI, or Relative Strength Index, is trading relatively flat at 42 on the daily time frame. It appears that the next catalyst for the TSX will be a move higher or lower in either crude or gold.

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